Using Bayesian variable selection methods to choose style factors in global stock return models

This paper investigates the presence of global style factors in global equity investment. To this end, we apply Bayesian variable selection methods from the statistics literature to give guidance in the decision to include/omit factors in a global (linear factor) stock return model. Once we have acc...

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Bibliographic Details
Published in:Journal of banking & finance 2002-12, Vol.26 (12), p.2301-2325
Main Authors: Hall, Anthony D., Hwang, Soosung, Satchell, Stephen E.
Format: Article
Language:English
Subjects:
Banking
Bayesian method
Bayesian variable selection
Economics
Equity
Factor mimicking portfolio
Finance
Global portfolio
Investment
Manycountries
Portfolio analysis
Portfolio management
Rates of return
Regression analysis
Stock returns
Studies
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Summary:This paper investigates the presence of global style factors in global equity investment. To this end, we apply Bayesian variable selection methods from the statistics literature to give guidance in the decision to include/omit factors in a global (linear factor) stock return model. Once we have accounted for country and sector, it is possible to see which style or styles best explains current asset returns. This study does not find compelling evidence for global styles as useful explanatory factors in a fixed parameter regression model, once country and sector have been accounted for.
ISSN:0378-4266
1872-6372
DOI:10.1016/S0378-4266(01)00205-9